Financial Accounting Theory (5th Edition)

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Matt Steger Seminar #6 – Efficient Securities Markets (continued) September 10, 2009 Markets are not efficient because of the bad apples – what Scott and Akerlof refer to as “lemons” -- which comprise that market. These inefficiencies are the result of information asymmetry brought on primarily through adverse selection, moral hazard, or a combination of the two. Scott makes his presentation first by describing what it means when a market is asymmetrical. He writes that in this type of market, “one type of participant in the market (sellers, for example) will know something about the asset being traded that another type of participant (buyers) does not know” (114). He then proceeds with the discussion by presenting two examples to illustrate the meanings of adverse selection and moral hazard; these kinds of actions cause information asymmetry. Fundamental Value is yet another stop that Scott makes along the way in order to further his discussion. He writes, “the fundamental value of a share is the value it would have in an efficient market if there is no
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Seminar_6_Writeup - M att Steger Seminar#6 Efficient...

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